case study on hse - engro chemicals

Directory of Human Resource Management e.PublicationsJune (2011) Vol. 1, Issue 1

HRMARS, Pakistan www.hrmars.com

CASE STUDY ON:ENGRO CHEMICAL PAKISTAN LIMITED SUCCESS; WITH FOCUS

ON EFFORTS UNDERTAKEN BY ENGRO FERTILIZERS TOIMPROVE OCCUPATIONAL HEALTH AND SAFETY STANDARDS

Author: Beenish AmeerStudent, Department of Management Sciences, The Islamia University ofBahawalpur, Pakistan.Email: [email protected]



Agriculture accounts for approximately 23% of Pakistan's GDP, provides direct and indirectemployment to over 70% of the country's workforce and results in earnings of over 60% ofexport dollars.

Engro Chemical Pakistan Limited (ECPL) is a listed public company incorporated in Pakistan. In1991, Exxon chemical fertilizer limited decided to divest its fertilizer business on a global basis.The employees of Exxon Chemical Pakistan Limited, in partnership with leading internationaland local financial institutions, bought out Exxons 75% equity. This was at the time and perhapsstill is the most successful employee buy-out in the corporate history of Pakistan. Renamed asEngro Chemical Pakistan Limited, the Company has gone from strength to strength, reflected inits consistent financial performance, growth of the core fertilizer business, and diversificationinto other businesses.

The company has since diversified and expanded into several businesses ranging from dairy tobulk handling. ENGRO today consists of the core fertilizer business with a capacity of 975K tpafor urea and several subsidiaries namely Engro Foods Limited (EFL), Engro Vopak TerminalLimited (EVTL), Engro Eximp Limited (EXIMP), Engro Power Gen Limited (EPGL), EngroEnergy Limited (EEL), Engro Polymer & Chemicals Limited (EPCL) and Avanceon Limited(EIAL).ECPL having good reputation in market by strong brand name and management practices andprinciple inherited from EXXON CHEMICAL USA, after the management buy out in 1991.

The principal activities of ECPL are the manufacturing, purchasing, and marketing of fertilizers.The Company's fertilizer brand, Engro', is the second highest selling urea brand in Pakistan. TheCompany's financial and management strength is denoted by its AA- rating by the PakistanCredit Rating Agency.

The fertilizer industry in Pakistan is of an oligopolistic nature, with the four major players in themarket - Engro, FFC, FFBL and Dawood Hercules. Considering the urea market, FFC and FFBLhave the highest share of urea production i.e. 48%, Engro 15%, Dawood Hercules 6% and 20%is imported and distributed through NFML. And considering the phosphorus market, FFC andFFBL captured high share of 47%, Engro 28%, Agri tech 2%, RG 1% and around 22% isimported. But the Engro urea doesnt command the same market premium as competitors Fujifertilizers product sona Sona urea is sold in the Punjab province, whereas engro has strongniche in sindh. The in-house diversification includes, NPK Fertilizer business, seed business,phosphate and micronutrient businessThe demand of fertilizer was very badly affected due to soil erosion and loss of land, which isbecause of recent flood in Pakistan.. The demand of the urea in Pakistan stood 4.2MT comparedto 4.6MT last year showing a decrease of 10%, while the demand of DAP stood 0.7MTcompared to 1.2MT signifying a decrease of 40% compared to the same period last year.Considering the performance of Engro Fertilizer, the sales of the Engro urea remained 665ktcompared to 688kt last year showing a decrease of 3.4% compared to average industry drop of10% in the same period. The sales of Zarkhez have decreased to 66kt from 73kt signifying adecrease of 10% and the sale of phosphate decreased from 235kt to 196kt showing a decrease of16.5%. The overall sales of the Engro Fertilizers in the current 9-month period were around 12billion compared to 20 billion of the same period last year, showing a decrease of 38%.



Despite the decrease in the sales, the gross profit margin of the company has increased to 46%against the 23% of the last year. The gross profit margin has increased throughout the industrydue to low import cost of DAP in the first two quarters and an increase in the price of urea from730 to 830 rupees in the domestic market. The gross profit margin remained higher than averageindustry 40%.The demand for fertilizer has increased significantly in the year 2010, the worldfertilizer sales and consumption has increased by 13% and 7% respectively due to the Rabiseason, increase in the rain-fed area and water availability due to floods, increasing food pricesin the country and due to general reliance on productivity to meet the food needs of the growingpopulation.

Engro Chemical Pakistan Ltd plans to build a $1 billion phosphate fertilizer plant in NorthAfrica to feed demand in Pakistan and Western Europe, The proposed North African fertilizerplant will produce about one million metric tons a year, almost three times more than Fujis jointventure.. The company also maintains a hybrid seed business and has made progress in thedevelopment of its own hybrid seeds. Recently in 2010, keeping in view the immensediversification of Engro Chemical Pakistan Limited, it was decided to rename the company asEngro Corporation as the holding company

Engro has always emphasized quality assurance in its product and its operations. Engro hascommitment to sustainable development. Engro operates in highly secure markets with stabledemand being the forte of their business models, financial charges erode the earningssubstantially and reduce value addition for the stake holder.ECPL is regarded as a professional company having one of the best management teams in thecountry practicing the highest standards of corporate governance and business strategy. Themanagement of Engro has recently indicated interest in demerging its fertilizer(Core) businessfrom itself by creating an entity which is solely responsible for fertilizer business. The intentionis to decentralize certain functions for efficiency Purposes. The company intends to spin-off itsfertilizer related assets and liabilities to a newly formed entity Engro Fertilizer Limited andrenaming the parent companyas Engro Corp.In addition to meeting sales targets, ECPL's marketing strategy has focused on farmers'education on the effective use of fertilizers. The market development program includescharacteristics like soil testing, crop demonstrations, farmer meetings, and training its marketingmanpower and dealers. Over the years, ECPL's advertising campaigns have introduced masseducation to aid farmers in choosing the most favorable package for their crops. The sales andpromotion efforts have provided valuable merchandising assistance to ECPL dealers.

Engro is a premier regional enterprise and takes pride in nurturing a culture embodying strongethical, pro-health and open values. We aim at fostering a culture that inspires people toinnovate, act positively and contribute to the company and environment. Strong ethical practiceshave been fundamental to Engros philosophy and operation. Engro embodies corporateintegrity; all its employees are expected to abide by our ethical principles embedded in theStatement of Ethics and Responsible Business Conduct.



The company's approach to corporate and social responsibility (CSR) is built on respect for theenvironment and maintaining strong relationship with all key stakeholders. These arestakeholders of engro, employees are 1664, customers are 68000, consumers are 3,100,000,vendors are 3,500 , shareholders are 11365, dairy farmers are 51,000, students are 4,300, patientare 32,500.so total lives touched engro is 3,275,334. Engro cares for the natural environmentthrough responsible management of resources. They promote safety in the workplace andprogressive human resource practices because they benefit their employees, who are essential totheir success .They, invest in their communities because strong, healthy communities provide thefoundation for strong healthy relationships for company to grow.Engro has also signed up with the UN Global Compact to confirm its supports for the tenprinciples with respect to human rights, labor rights, the protection of the environment and anti-corruption..ENGRO is one of the most dynamic and progressive institutions in Pakistan. Its Mantra ofEnergy for Growth is well represented in the nature and business of its Subsidiaries.Undeniably, the company has become an icon of augmentation and Value addition for its stakeholders. They have an opportunity to enhance business/sales activities by understandingcustomers businesses better. Capitalize on competitor's weaknesses and target the marketopportunities available to them. Scout for potential acquisition targets, with detailed insight intothe companies strategic, financial and operational performance..In fact ECPL is growing by leaps and bound and they prove that they say Growing with pride.

QUESTIONS:

Q: 1 what is mission statement for ENGRO CHEMICAL PAKISTAN LIMITED?

Q: 2 what are the core values for ENGRO and how this company use its core values in decisionmaking?

Q: 3 ENGRO is most successful fertilizer company, so what do think what step it can take to getmore success?

Q: 4 what are the key actors and forces that enhance success of ENGRO chemical Pakistanlimited?

Q: 5 SWOT analysis of engro chemical Pakistan limited?

Q.6 How engro management capabilities is helpful in achieving its strong performance?

QUESTIONS SOLUTIONQ1. What will be mission statement for ENGRO chemical Pakistan limited?

To help farmers maximise their farm produce by providing quality plant nutrients andtechnical services upon which they can depend



To create wealth by building new businesses based on Country's strengths inPetrochemicals, Information Technology, Infrastructure and other Agricultural sectors .

Q2. What are core values for ENGRO and how this company uses its core values indecision making?

Engro core values are under as follow;

Safety, Health & Environment Leadership Teamwork & Partnership Diversity & International Focus Quality & Continuos Improvement Ethics & Integrity External Community Involvement Candid & Open communication Innovation Individual Growth & Development Enthusiastic Pursuit of Profit Enjoyment & Fun

Their core values are well defined and we have a framework in place that enables them to seekthe commitment from all levels and deliver on goals and expectations. Engro's commitment tosustainable development is contained in their vision, mission statement and their core value thatdrive their decision making process. The company's approach to corporate and socialresponsibility (CSR) is built on respect for the environment and maintaining strong relationshipwith all key stakeholders.

Their Core Values reflect what we stand for and how we want to do business as a brand, as acompany and as individuals.

Q3. ENGRO Is most successful fertilizer company, so what do you think what step it cantake to get more success?

Enhance business/sales activities by understanding customers businesses better. Get detailed information and financial and strategic analysis on companies operating

in your industry. Identify prospective partners and suppliers with key data on their businesses and

locations. Capitalize on competitor's weaknesses and target the market opportunities available

to them. Scout for potential acquisition targets, with detailed insight into the companies

strategic, financial and operational performance.



- Compare your companys financial trends with those of your peers / competitors.

Q4. What are key actors and forces that enhance success of ENGRO chemical Pakistanlimited?

Engro has never been company to rest its laurels. The key actors and forces that enhance successof ECLP are

Engro has always emphasized quality assurance in its product and its operations. Engro's commitment to sustainable development. Sustainability is at the heart of Engro's

values and is central to the growth and continued success of their company. They promote safety in the workplace and progressive human resource practices, they

benefit their employees, who are essential to their success. ECPL is regarded as a professional company having one of the best management teams in

the country practicing the highest standards of corporate governance and businessstrategy.

Engro is committed to supporting it leadership culture through systems and policies thatfoster open communication, maintain employees and partner privacy, and assureemployees health and safety.

The company's approach to corporate and social responsibility (CSR) is built on respectfor the environment and maintaining strong relationship with all key stakeholders.

Brand leadership. Manufacturing technology. Economies of scale. Core values. Diversification of business. Management of organization is professional; they are ready to compete all challenges. In ECLP channel network is working, all company policies and information is shared

with employees thats why they are going success. Corporate strategy.

Swot analyss of ECPL?

STRENGTH:

Strong performance management(management practices and principle inherited fromEXXON CHEMICAL USA ,after the management buyout in 1991)

Subsidize gas pricing during the last 10 years has resulted in strong accumulated reserve;low gearing will provide finance strength to company in coming years.

50% joint venture, ENGRO vopak has completed. Four years of profitable operations.FURTHER DIVIDE INCOME WILL HEDGE AGAINSTECPL,s core business.

Strong customer and product research. Large market share of Engro innovative and chemicals. Having good reputation in market by strong brand name.



WEAKNESSES:

While engro vopak is performing satisfactorily deterioration in operating results of engroa SAHI could result in A SAHI calling financial support from ECPL.

Engro urea doesnt command the same market premium as competitors Fuji fertilizersproduct sona Sona urea is sold in the Punjab province, whereas engro has strong niche insindh province.

Unable to fulfill demand of local powder milk market.

OPPORTUNITIES:

New petrochemical projects will help to improve profitability. Reduction in business risk through capturing a larger segment of value addition chain. Agriculture business projects like blended fertilizers, and hybrid seed.etc. May merge with their global business to eliminate competitors. Has potential to innovate and differentiate companys product to sustain a competitive

advantage.

THREATS:

Competitive or technological threats are highlighted. major internal factors which will affect the companys performance e.g. size, strength,

cost, revenues and strategy as well as external factors e.g. competitive positioning andindustry trends.

Perception and price differentiation. High inflation rate. Decreasing GDP growth rate. Low purchasing power. Increase interest rate. Decreasing investment. Recessionary period in business cycle. Engro food is currently facing increase in sale tax.

How engro management capabilities are helpful in achieving its strong performance?



ECPL is regarded as a professional company having one of the best management teams in thecountry practicing the highest standards of corporate governance and business strategy. Amongits achievements are:

Strong financial performance. Ability to develop and execute cost effective and strategic expansion projects. Comprehensive approach towards diversification in the petrochemical and agro-chemical

industry. Investor and market confidence; ECPL is a 22-time recipient of the Karachi Stock

Exchange's Top 25 Companies Award (in the award's 25 year history).

case study on hse - engro chemicals

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